Sunday, July 31, 2011

When it comes to the internet, in Touch Weekly looks pretty out of touch.

The gossip sheet’s web site was rated dead last among 87 major-magazine web sites in a study released a few days ago by L2, a “think tank for digital innovation”, and New York University’s business school. in Touch’s site scored a “Digital IQ” of 32, suggesting its intelligence is somewhere in the range of “Deliverance” characters or maybe the NBC executives who canceled “Star Trek".

I’m no web designer (in case you hadn’t noticed), but the in Touch site does have a late 1990s “Guess what? We’re now on the Internet!” look to it.

It’s hard to tell the ads from the articles, except the ads are even tackier. There’s no search option or even any sections to click on. Navigation? Try the little “Next Page” link at the bottom.

The message seems to be “Now that you’ve wasted a few minutes on this site, go out and buy the real magazine. And we mean the printed magazine; we don’t need no stinkin’ apps or ebook versions.”

News reports about the L2 study focused on Time – whose business model has been devastated by the web – being the only magazine rated “genius” (Digital IQ = 140). But for a snarky blogger, focusing on the bottom of the list is more fun, and perhaps more revealing.

Here are the seven sites that L2 rated Feeble (“Investment does not match opportunity”), along with their Digital IQ, L2’s description, the title’s owner, its Alexa.com rank for U.S. web traffic, and Dead Tree Edition's commentary:

1) in Touch Weekly: 32; “A lot of opportunity to improve”; Bauer. Alexa rank: 10,559. Come on, how about a link for "Stars in rehab" and another for "Stars out of rehab"?

2) Town & Country: 43; “Is anyone home?”; Hearst. Alexa rank: 202,907. That low rank means it gets less traffic than the Web sites of much smaller-circulation magazines, such as those of Folio: and Publishing Executive. Why? Because there's basically no content, just ads and promotions.

Wednesday, July 27, 2011

The U.S. Postal Service is seeking permission to implement “exigent” rate increases in January averaging more than 4% on most classes of mail.

In a filing with the Postal Regulatory Commission this week, USPS asked for the ability to implement the special rate increases, along with the usual inflation-based price increases, to make up for the volume it lost during the recent recession. The PRC rejected a similar 2010 attempt to impose exigent increases of about 5.6%, but is reconsidering that ruling at the direction of a federal court

“The Postal Service suffered financial harm directly associated with extraordinary and exceptional volume losses that the [inflation-based] price cap mechanism is incapable of addressing,” the USPS brief in the case says. “The Postal Service respectfully requests that the Commission recognize $2.34 billion as a plausible lower-bound estimate of the Postal Service’s financial harm ‘due to’ recession-related volume losses in FY2008 and FY2009, and approve exigent increases (for January 2012 implementation) on that basis.”

To yield $2.3 billion annually, the rate increases on the market-dominant classes of mail -- such as First Class, Standard, and Periodicals -- would have to average at least 4.2%. USPS did not specify exactly how rates would change, only that it wants increases that would bring in an additional $2.3 billion in revenue.

But mailers groups don’t think the court order means the Postal Service should get another crack at rate increases that exceed the rate of inflation.

“The court left in place the Commission’s findings that the Postal Service had submitted no evidence indicating that its request was causally related to the recession, and that the Postal Service’s financial problems were caused in large part by longstanding structural issues, not the recession,” says a joint filing by four industry groups.

The Postal Service brief notes that USPS is in even worse shape now that when it filed the original request for exigent increases last year:

“The contribution lost as a result of the massive volume declines, including volumes lost because of the recession, has not returned, and, based on volume projections, is unlikely to return. The injection of additional revenue from this increase is also critically important to ensuring the continuation of mail service. The Postal Service lost $15.1 billion over the FY2008-FY2010 period, will lose approximately $9 billion this year, and will soon exhaust its statutory borrowing authority. The Postal Service currently expects to run out of money to pay its employees and suppliers sometime next year, thereby risking a shutdown in mail service. The additional revenue from this increase would help to delay that date, and is therefore clearly ‘necessary’ to ‘enable the Postal Service…to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States.’”

Monday, July 25, 2011

Two announcements within the past week demonstrate that some newspaper publishers are increasingly viewing printing as a profit center while others take the opposite tack and shut down their printing operations.

The Chicago Sun-Times revealed Tuesday that it will become the second major metropolitan daily in the U.S. to outsource all of its printing. But rather than turning production over to a commercial printer, as the San Francisco Chronicle did, the Sun-Times will entrust its printing to the rival Chicago Tribune starting in late September.

The next day, Baldwin Technology Company announced that is has sold UV dryers that will be installed on two newspaper presses in Australia "to significantly improve print quality and enable use of a wider range of paper qualities." In other words, the presses will be able to do heatset offset printing on such higher-grade stocks as coated and supercalendered papers as well as lower-quality coldset printing on newsprint.

As demand for printed newspapers has shrunk in recent years, publishers have more idle time on their presses and less ability to justify investing in new presses. Increasingly, they will either turn their printing over to others or chase after outside printing work to justify the investments needed to keep their printing operations up to date.

The Sun-Times's shift will save it an estimated $10 million annually, partly because it can narrow the paper's width, and will provide more ability to run color ads, according to a Chicago Tribune article. The Tribune plant already produces Chicago editions of The New York Times and The Wall Street Journal but has enough capacity to take on the Sun-Times and seven suburban Sun-Times papers apparently without breaking a sweat.

Newspapers & Technology lists 20 closures of newspaper printing plants this year because of outsourcing to other newspapers. And there are increasing reports of newspaper publishers going after work that used to be done by commercial printers.

Baldwin's announcement suggests commercial printers can expect to see even more competition from newspaper publishers. Rather than the sort of multimillion-dollar investments in new presses for the San Francisco Chronicle plant, Baldwin is adding heatset as an option to the Australian presses for only $375,000 per press.

For its technology, which was originally developed for sheetfed presses, Baldwin envisions "further opportunities as printers around the world add flexibility and quality improvement to their production capabilities."

Thursday, July 21, 2011

An apparently unintended consequence of the proposed bipartisan "Gang of Six" deficit-reduction deal is that it could reduce future inflation-based increases in U.S. Postal Service wages and rates.

One section of the plan calls for a "shift to the chained-CPI (a more accurate measure of inflation) government-wide starting in 2012" to calculate changes in inflation. The document adds that, "According to CBO [the Congressional Budget Office], the shift to chained-CPI would result in the annual adjustment growing, on average, about 0.25 percentage points per year slower than the current CPI."

CPI, which comes in such variants as CPI-U and CPI-W, is the Consumer Price Index, which is used to determine cost-of-living adjustments (COLAs) for most USPS employees and to cap rate increases on the vast majority of mail, such as First Class, Standard (direct mail and catalogs), and Periodicals. A difference of 0.25% would probably translate to an impact of more than $100 million annually on both postal wages and postage rates.

Chained-CPI is a method for calculating inflation that takes into account people's tendency to substitute a less expensive item.

"One of the problems of inflation is it doesn't account for the fact that when the price of apples goes up, you buy oranges or bananas," Marc Goldwein, a chained-CPI advocate, told NPR. The Gang of Six would use chained-CPI to lessen cost-of-living increases for programs like Social Security.

The proposal does not specify whether chained-CPI would just be an alternative method of measuring inflation -- which would not affect union contracts or the rate-cap law that specify CPI-W or CPI-U -- or whether it would become the new method of calculating CPI-W and CPI-U. The "government-wide" reference suggests that, even if CPI-U is left as is, there could be a push to change the rate-cap law so that it refers to chained-CPI rather than CPI-U.

Wednesday, July 20, 2011

Two of the U.S. Postal Service’s most successful methods for cutting costs – early-retirement incentives and automation – are no longer viable strategies because of USPS’s cash crunch, according to a report released today.

“Overall, offering more early retirements for eligible employees would create additional cost savings,” says the report from the USPS Office of Inspector General on USPS's cost structure. It noted a Postal Service statement indicating that savings from buyouts of more than 20,000 clerks and mail handlers two years ago have already doubled the $15,000-per-retiree payouts.

“The problem, however, is how to incentivize further buyouts that the Postal Service cannot afford to offer in its current financial state.”

Largely because of investments in automation and other efficiency improvements, the Postal Service’s labor productivity has improved by 10% in the past decade, according to the report. That has come despite the cards being stacked against the Postal Service -- in the form of decreasing volume, increasing delivery points, and benefits costs that are skyrocketing largely because of Congressional mandates.

But with spending constraints implemented two years ago, USPS’s capital investment has dropped to less than half of its depreciation costs and is one-third to one-sixth the level that is typical for private competitor UPS.

“A continuing freeze in capital investment, while saving the Postal Service in the short term, may paradoxically lead to higher costs in the future, as it defers projects that could potentially improve productivity, such as information technology (IT) upgrades, network rightsizing, and the purchase of energy efficient vehicles. Rightsizing the network to meet decreasing demand is vital to the future viability of the Postal Service.”

Much of the blame for the Postal Service’s financial problems, the report says, comes from its unusual prefunding of retiree health benefits. Congress established those multibillion-dollar annual payments “to secure the Postal Service’s long-term financial viability” but they “are ironically undermining efforts to keep the Postal Service solvent in the near term."

The report concludes: "The Postal Service is at a critical juncture in its history. Only through a combination of continued cost reductions including a rightsizing of the network to meet declining demand, legislative action to deal with cost burdens, and investing in select projects that continue its long history of productivity increases can the Postal Service return to economic viability."

Thursday, July 14, 2011

I was stunned recently by news that, once again, I was named #43 on the RISI Top 50 Power List of the most influential people in the global forestry industry.

Maintaining the same spot for the second year in a row may not seem like much of an accomplishment, but as we used to say in the magazine business, “Flat is the new up.” (That was early in the recession, when any magazine that matched the previous year’s total for sales of ad pages was the envy of its peers. Then the saying became “Slightly down is the new up.” Now it’s “Ad pages? Wait ‘til you see our new app. It’s really cool!”)

Last year’s selection honored my coverage of the black liquor tax credits. But considering how much effect – absolutely zero -- those 40-plus articles have had in preventing further government giveaways, I didn’t expect to make the list again. In fact, I think the esteemed editors at RISI overlooked a few folks who had far more influence on the forest products industry than I:

Dead People

Going to the magazine section of a grocery store these days is like visiting a morgue – Osama bin Laden on several covers, Cleopatra on National Geographic, another Cleopatra (Liz Taylor) on a couple of post-mortem specials, Betty Ford on news magazines, and Paul McCartney (You say Paul’s still alive? Then you haven’t heard his recent recordings.)

Newsweek brought Princess Diana back from the dead and plopped her into a photo of the recent royal wedding, figuring she was always good for newsstand sales (but, alas, not for ad sales). Rival Time has a bookazine commemorating her 50th birthday. Now if U.S. News & World Report issues America’s Best Dead Princesses, we could call it a leopard-skin pillbox hat trick. (I know, U.S. News is no longer one of the three newsweeklies, but Newsweek and Time aren’t very newsy these days – though they’re selling ads pretty weakly.)

My industry has given up trying to beat the Web or broadcast at breaking news. But when it comes to burying people – or to digging them up and having some fun with them – those new-fangled technologies can’t hold a votive candle to us.

Cardboard Animals

I haven’t received many tips from the cardboard industry ever since pointing out that their toll-free “Cardboard recycles” number actually went to a telephone-sex service. (See Hey, big boy, can I recycle your cardboard?.) So this hot trend involving a paper-based product was not on my radar until a recent Cascades news release announcing the launch of a new pet homes line “for small animals made from recycled cardboard.”

That’s right, there are so many recycled-cardboard animals being manufactured (born?) these days that already a housing industry is growing up around them. Just think, pretty soon they’ll have their own adjustable-rate loans, collateralized mortgage obligations, and paper profits.

The news release touts the “fun and playful . . . cardboard cat chalet and teepee” by noting that the cathouses are “perfect for lapdogs”. (Today’s advice: Don’t bring a lapdog to a cathouse; it will jump onto the bed at the worst times.)

Rupert Murdoch

Murdoch put a dent in the UK newsprint market a few days ago by closing the supposedly profitable News of the World so that its phone-tapping scandal wouldn’t hinder News Corp. expansion efforts. How big will the dent be if Rupert shuts every News Corp. paper that has engaged in illegal or highly unethical activities? Rupert? Rupert?

Rep. Anthony Weiner

Congressman Weiner provided a brief respite for the beleaguered American newspaper industry. And if you believe in the power of prayer, his positive influence is far from over.

For a few glorious weeks, people everywhere, even on the Web were talking about newspapers and their clever “Battle of the Bulge” headlines. They were actually buying newspapers as collectors items. Newspapers became a safe way to pass weiner jokes around the office without getting into trouble with HR.

But now that he’s resigned, we can put a fork into Weiner and call him done, right? Not so fast. Spreading like wildfire among American newsrooms is the new Headline Writers Prayer that was inspired by Weinergate:

“O Lord of Journalism (not you, Rupert, the Real God), we thank Thee for the gift of Anthony Weiner and his – well, You know.

We thank Thee that for awhile we could stop worshiping the false Search Engine Optimization gods with their bland headlines only an engineer could love. We thank Thee that instead we were able to craft good old-fashioned zingers that served the forces of truth, justice, and the double entendre.We thank Thee that the nuns were wrong; otherwise, as much as we’ve been playing with Weiner lately, all of us would be half-blind.

We promise never again to write headlines causing people to think they should care about anything Lady Gaga does, if You would but grant just two requests:1) Help the American people understand that “oeh” is pronounced with a long “o”, not a long “a”.2) Please, oh please, let the next Congressional sex scandal involve John Boehner.

Chinese Bureaucrats

“Creative destruction” is supposed to be a strength of the free-enterprise system. But as far as the paper industry is concerned, the commies have us capitalists beat in the Creative Destruction Department.

What Chinese officials have destroyed and created are having huge impacts worldwide – from defunct Canadian pulp mills being restarted, to recycled-newsprint mills becoming an endangered species in much of the West, to massive forestry (some would say deforestation) projects in places like Indonesia.

The destruction came in the form of forcing thousands of small paper mills, many of which used straw and other non-wood fibers for pulp, to shut down in the past decade.

Rather than the previous Chinese practice of adding capacity with cast-off machines from the West, the Chinese government encouraged the construction of massive new, world-class paper machines. And for environmental and efficiency reasons, the new machines use wood-based fiber and recycled paper – both of which are in short supply.

That giant sucking sound you hear is those Chinese monsters slurping up fiber from around the world, driving pulp prices up to record levels despite a worldwide recession and generally mediocre paper pricing. From the way the Chinese are acting these days, you’d think they were the ones who invented paper.

For further reading:

Dead Tree Edition Tops Twitter and the World Cup is the Dead Tree Edition article that celebrated last year’s #43 ranking and revealed how I once confused parasitic wasps with parasitic WASPS. (And, yes, once gain Twitter and LinkedIn are below me in the rankings this year.)

Black Liquor Makes the Top Ten summarizes how billions in taxpayer money has been handed out to U.S. pulp manufacturers in black liquor and Son of Black Liquor tax credits, despite Dead Tree Edition’s coverage. (By the way, three of the top four people on the RISI list this year are CEOs of companies that are benefitting from those handouts.)

Is Bankruptcy Inevitable for NewPage?: By far Dead Tree Edition's most popular forestry-industry article of the past 12 months (and still a relevant question 10 months after it was published).

Sexy Slogans With a Bite: My recent article for Publishing Executive, in which I demonstrate an overly active imagination in a quest to perk up the American magazine industry.

Monday, July 4, 2011

In Donahoe’s Answer to Postal Bailout Criticism, we noted the Postmaster General’s recent article explaining that the U.S. Postal Service’s financial straits are a creation of Congress rather than actual financial losses. But the article omits key points, partly because the Postal Service can’t afford to offend Congress right now with the unvarnished truth.

Here are six more things that ignorant critics in Congress and the news media need to consider about USPS finances:

1) Congressional game: The Postal Service is the victim of a Congressional accounting game. What Donahoe diplomatically labels “prepayment to the Retiree Health Benefit fund” was more accurately described by the Office of Inspector General as using “Postal Service funds to make the President’s budget seem smaller.” (See How USPS Could Bypass Congress on Saturday Delivery.)

2) Real conservatism: Why are so many conservatives criticizing efforts to end the “prepayments” when they also claim (correctly, in my view) that the President’s budget is too large? If they understood the situation, I suspect they would conclude that the truly conservative approach would be to end this shell game that misleads taxpayers about the size of the federal deficit. But that would require searching for the truth rather than sound bites.

3)Reforming the “prepayments” is no longer enough: Although accurate accounting of the prepayments, as assets rather than expenses, would have put USPS in the black in recent years, that no longer seems to be the case. The rapidly declining volume of highly profitable First Class mail is overwhelming the Postal Service’s cost-cutting efforts. USPS must find additional efficiencies to balance its books.

4) Not much light in there: The people who claim that the recent APWU labor contract is a giveaway by the Postal Service are engaged in “rectal-cranial explorations”. (That’s a polite way of saying they’ve got their heads up their – well, you get the point.) As someone who works in the news media, I’m embarrassed by many of the news articles and editorials on the contract, which clearly were written by people who hadn’t bothered to look at the contract or to do even a few minutes of research. The pundits tut-tutted about the pay raises for current employees without noticing the more significant efficiency gains, such as pay-scale reductions for future employees and greater use of part-time and temporary workers. (See Is the APWU Eating Its Young? and Junk Journalism and the Bogus Postal Statistic for more on the groundbreaking contract.)

5) Hypocrites: Any member of Congress who criticizes the Postal Service for not cutting expenses enough is a hypocrite. Have you ever heard of a Congressman supporting the closure of a rarely used post office in his district? Donahoe’s article pointed out cost cuts in recent years totaling about 15% of annual USPS expenses and plans for another 25% in cuts. How many members of Congress have advocated specific cuts in the federal budget that even approach that kind of scale?

6) Penny wise, pound foolish: The Postal Service has foregone some investments that would have easily paid off, such as replacing some of its aging, high-maintenance delivery vehicles and revamping some of its facilities. (See Here's How the Postal Service Can Get Back Its Pension and Benefits Overpayments for more on this issue.) But its cash crisis, brought about by the bogus retiree health benefits accounting, has prevented it in recent years from spending a little money to save a lot more.

In a recent article for Deliver magazine, Postmaster General Pat Donahoe provided an excellent rebuttal to claims of some ignorant Congressmen and commentators that the U.S. Postal Service is seeking a bailout. (But also see 6 Points Donahoe Left Out of His Bailout Rebuttal for the truths he was too polite to mention.)

The article, "The Postal Service Needs Relief from Congressional Mandates", notes that the Postal Service would have been profitable the past few years if not for an unusual financial burden placed on it by Congress. And he calls on Congress "to reform the unfair and onerous mandates that hinder us from competing in today’s environment".

Believing that the Donahoe article needs to be read by people other than Deliver's target market of corporate marketing managers, Dead Tree Edition is providing the entire text of the article below. (And if the Postal Service objects that this is a copyright violation, we'll take the article down in a heartbeat.):

Last year, the United States Postal Service® delivered 171 billion pieces of mail. That’s 563 million pieces processed each day. Those numbers, however, are not the figures some of our critics like to talk about. The number they like to cite is $20 billion — the Postal Service’s total net financial losses from 2007 through 2010.

Twenty billion dollars is a staggering sum. But you might be surprised to learn that those losses are due to an unusual requirement in the 2006 Postal Accountability and Enhancement law. The impact of this requirement is significant: The Postal Service paid $21 billion in the past four fiscal years to fund retiree health benefits for future retirees. Were it not for this provision of law, the Postal Service would not be operating in the red; it would have turned a profit of $1 billion from 2007 to 2010, a period when mail volume declined 20 percent due to the recession.

Unlike other American businesses, the Postal Service must pay cash today for health benefits that will not be paid out until a date far in the future. Other federal agencies and most private sector companies use a “pay-as-you-go” system, paying premiums as they are billed.

Consider that the Postal Service had to borrow $12 billion from the U.S. Treasury so that it could make the $21 billion prepayment to the Retiree Health Benefit fund over the past four fiscal years. This is capital that would have allowed us to invest in new products and innovation, lower postage rates and remain profitable.

We are resolutely committed to paying our fair share for our employees’ and retirees’ health care costs and have set aside more than $42 billion for such future costs. But these accelerated payments constitute a hidden tax that is neither fair nor responsible. It’s time for Congress to act to eliminate this burdensome mandate.

If action is not taken to address this situation immediately, the Postal Service will default on payments to the Retiree Health Benefit fund — and possibly on other government payments — on or before Sept. 30 of this year.

In the meantime, we are doing our part. Over the last four years, Postal management has eliminated more than $12 billion in costs and has committed to cut another $16 billion over the next several years. We are working diligently to dramatically improve our internal processes, including how we manage our workforce. Our recently ratified contract with the American Postal Workers Union is a good example of this. The contract gives the Postal Service much greater flexibility to manage work hours — where and when we need them — rather than bind us to static work shifts and significant overtime costs. The provisions of this agreement will provide the Postal Service with future cost savings of $3.8 billion.

The Postal Service is the heart of a $1 trillion mailing industry and is essential to the American economy. And we are committed to cutting costs within our statutory authority. But Congress must act to reform the unfair and onerous mandates that hinder us from competing in today’s environment.

With Congressional action to address retiree health benefit pre-funding and other legislative and regulatory constraints, the Postal Service can more nimbly adapt to meet customer needs and better fulfill its mission: to deliver value, convenience and innovation to the American people and our nation’s businesses.

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